Question 1

Figure 12-10  
-In the short run, if a firm shuts down, it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

Question 2

To maximize profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

Accepted Answer

If P > ATC, the firm makes a p

Question 3

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 4

Figure 12-17   The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17. Which of the following statements is true?

Accepted Answer

A)  The current market price is $3, but the firm will be able to increase the price in the future. 
B)  The current market price is $3, but the price will fall in the long run as a result of a decrease in demand. 
C)  The current market price is $3, but the price will fall in the long run as new firms enter the market. 
D)  The current market price is $3, but the price will increase in the future as the market demand increases. 
A)  The current market price is $3, but the firm will be able to increase the price in the future. 
B)  The current market price is $3, but the price will fall in the long run as a result of a decrease in demand. 
C)  The current market price is $3, but the price will fall in the long run as new firms enter the market. 
D)  The current market price is $3, but the price will increase in the future as the market demand increases.

Question 5

A wheat farmer and a firm in a perfectly competitive market are similar in that

Accepted Answer

A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost. 
A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost.

Question 6

Table 12-3
   Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
-Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00. 
A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00.

Question 7

Which of the following is the best example of a perfectly competitive firm?

Accepted Answer

A)  a corn farmer in Illinois 
B)  a Taco Bell restaurant 
C)  the Ford Motor Company 
D)  the United Parcel Service (UPS) 
A)  a corn farmer in Illinois 
B)  a Taco Bell restaurant 
C)  the Ford Motor Company 
D)  the United Parcel Service (UPS)

Question 8

Firms that are price takers

Accepted Answer

A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price. 
A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price.

Question 9

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

Accepted Answer

A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production. 
A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production.

Question 10

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Accepted Answer

A long-run supply curve shows the relati

Question 11

Figure 12-11  
-Refer to Figure 12-11. If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Accepted Answer

A)  $5 
B)  $14 
C)  $15 
D)  $20 
A)  $5 
B)  $14 
C)  $15 
D)  $20

Question 12

Figure 12-14  
-Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 13

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 14

If the market price is $40, the average revenue of selling five units is

Accepted Answer

A)  $8. 
B)  $20. 
C)  $40. 
D)  $200. 
A)  $8. 
B)  $20. 
C)  $40. 
D)  $200.

Question 15

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

Productive efficiency refers to a the si

Question 16

In perfect competition

Accepted Answer

A)  the market demand curve and the individual's demand are identical. 
B)  the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. 
A)  the market demand curve and the individual's demand are identical. 
B)  the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Question 17

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 18

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. At price P2, the firm would produce

Accepted Answer

A)  Q2 units. 
B)  Q3 units. 
C)  Q4 units. 
D)  zero units. 
A)  Q2 units. 
B)  Q3 units. 
C)  Q4 units. 
D)  zero units.

Question 19

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business?

Accepted Answer

A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue. 
A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue.

Question 20

Which of the following is not an assumption of perfectly competitive markets?

Accepted Answer

A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical. 
A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-10 -In the short run, if a firm shuts down, it avoids its variable cost but not its fixed cost.

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

Figure 12-17 The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. -Refer to Figure 12-17. Which of the following statements is true?

A wheat farmer and a firm in a perfectly competitive market are similar in that

Which of the following is the best example of a perfectly competitive firm?

Firms that are price takers

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Figure 12-11 -Refer to Figure 12-11. If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Figure 12-14 -Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry.

If the market price is $40, the average revenue of selling five units is

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

In perfect competition

Under what conditions should a competitive firm shut down in the short run?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P2, the firm would produce

Which of the following is not an assumption of perfectly competitive markets?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters